Your Future, Your Super - Reforms to make your super work harder for you October 2020 - Treasury.gov.au
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Your Future,
Your Super
Reforms to make your
super work harder for you
October 2020
treasury.gov.au
What is the super system costing you?
$ 30
was paid last year in
billion $ 121
is contributed by
billion
super fees, more than Australians each
the $27 billion on year into the
energy, and superannuation
$12 billion on system
water bills
6million
multiple accounts held
$ 100
of Australians’ money
billion
by 4.4 million people is in underperforming
super products
13.6%
increase
3
accounts
million
in the average are in underperforming
MySuper fee on a super products
$50,000 balance
since 2014
2 Budget 2020–21 | Your Future, Your Super reforms to make your super work harder for you
Your Future,
Your Super
Reforms to make your
super work harder for you
October 2020
treasury.gov.au
© Commonwealth of Australia 2020
ISBN 978-1-925832-18-1
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4 Budget 2020–21 | Your Future, Your Super reforms to make your super work harder for you
Contents Your Future, Your Super . . . . . . . . . . . . . . . . . . . . . . . . . 1 Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Minister’s foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Fixing the superannuation system . . . . . . . . . . . . . .14 Your super follows you . . . . . . . . . . . . . . . . . . . . . . . . 19 Empowering members . . . . . . . . . . . . . . . . . . . . . . . .21 Holding funds to account for underperformance . 22 Increasing transparency and accountability . . . . . 25 Measuring the benefits of Your Future, Your Super 28 Next steps—roadmap for reform . . . . . . . . . . . . . . . 34 Appendix 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Appendix 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Your Future, Your Super reforms to make your super work harder for you | Budget 2020–21 5
Minister’s
foreword
The superannuation system manages almost spend on water bills. By 2034, it is estimated
$3 trillion in retirement savings on behalf of that Australians could be paying $45 billion in
16 million Australians. There are enough savings superannuation fees.
in the superannuation system to buy every
At the same time, Australians hold around
company listed on the Australian Securities
3 million accounts in underperforming funds
Exchange – one and a half times. Due to the
managing over $100 billion in retirement savings.
compulsory nature of the system, it is expected
A member in the worst-performing MySuper
to reach $5 trillion by 2034.
product could be up to $98,000 worse off in
While the superannuation system has grown retirement.
significantly, it needs to adapt to better meet
The current system has also resulted in
the needs of Australians. The current system is
6 million unintended multiple accounts
letting too many Australians down.
which are unnecessarily draining members’
Australians are paying $30 billion per year superannuation savings.
in superannuation fees. This is more than
Every dollar that an Australian pays in higher
the $27 billion Australian households pay
fees is a dollar that they will not benefit from in
on their energy bills or the $12 billion they
their retirement.
6 Budget 2020–21 | Your Future, Your Super reforms to make your super work harder for you
improving
the super
system
—
The Morrison Government’s goal is for the • Your superannuation follows you,
superannuation system to maximise the prevent the creation of unintended multiple
retirement savings of all Australians. We want superannuation accounts.
your money to work harder for you, so that the
• Empowering members, by making it easier
money you contribute today is invested in your
for you to choose a well-performing product
best financial interests, allowing you to enjoy a
that meets your needs.
higher standard of living in retirement.
• Holding funds to account for
We also want to help you make more
underperformance, protecting you from
informed decisions about who manages your
poor outcomes and encouraging funds to
superannuation. The superannuation system is
lower costs and fees to boost Australians’
complex and members do not have access to a
retirement incomes.
single, trusted and reliable source of information
to help them make a better choice. • Increasing transparency and accountability
for how superannuation funds use members’
Greater member engagement is critical to the
savings.
success of the superannuation system. It drives
greater competition which delivers lower fees Together, these changes will save Australians
and better returns for members. $17.9 billion over 10 years.
The Morrison Government’s Your Future, The Your Future, Your Super package is
Your Super package will implement a number the Morrison Government’s next step in
of key recommendations from the Productivity modernising and improving the superannuation
Commission review into superannuation and system to ensure it is working harder for you.
the Royal Commission into Misconduct in the
Banking, Superannuation and Financial Services
Industry.
Your Future, Your Super makes the
superannuation system better for members in
four key ways:
Your Future, Your Super reforms to make your super work harder for you | Budget 2020–21 7
Executive summary
• Australia’s $3 trillion superannuation ―― The inefficient design of default
system is the fourth largest in the world arrangements means members can
and is responsible for managing the fall victim to the ‘unlucky lottery’
retirement savings of 16 million Australians. in which they may be placed into
underperforming products. This could
• Superannuation will help many Australians
result in a member being significantly
to enjoy a higher standard of living in
worse off at retirement compared with
retirement. But structural flaws within the
being in a higher performing fund.
system mean many Australians will be
let down. ―― Funds lack accountability to their
members for their conduct and the
• Since 2013, the Coalition Government
outcomes they deliver and there is
has undertaken a number of reviews to
inadequate transparency on how funds
ensure the financial system, including the
are spending members’ money.
superannuation system, is working for
members. These reviews have found: • The Productivity Commission estimated in
2018 that fixing these flaws would benefit
―― The creation of unintended multiple
members by $3.8 billion each year. Were
accounts as people change jobs
these flaws to continue, Treasury estimates
and do not make a decision can
it would cost members $5 million a day.
have a significant impact on their
retirement savings and the efficiency • Fixing these flaws represents the next step
of the superannuation system, to the in the Government’s plan to make sure that
detriment of all members. your super is working harder for you.
―― Australians are paying too much for • Since 2018, the Government has
their superannuation. Longstanding successfully legislated to:
default arrangements have led to
―― Protect the retirement savings of
inadequate competition between funds
millions of Australians from the
and at the same time too few members
negative effects of unintended multiple
actively choose their own fund. System
accounts, including duplicate fees and
complexity and the lack of simple and
insurance, through the introduction
clear information is holding back more
of reforms to clean up the stock of
members from finding the best product
inactive low-balance accounts. Since
for them. As a result, most members
1 November 2019, $2.9 billion of
end up in the default fund selected by
inactive savings has been proactively
their employer. This means funds have
consolidated into the active accounts
little incentive to genuinely compete on
of 1.4 million people. This is estimated
the fees they charge.
to have saved Australians around
8 Budget 2020–21 | Your Future, Your Super reforms to make your super work harder for youSystem
flaws have
let many
Australians
down
—
$700 million so far in unnecessary fees ―― Remove restrictions from members
or insurance premiums. being able to choose their
superannuation fund. These changes
―― Prevent the unnecessary erosion of
have allowed about 800,000 Australians
balances by requiring that insurance is
to choose where their retirement
offered only on an opt-in basis for those
savings are invested rather than being
aged under 25 years, so that young
forced into a fund because they work in
people do not pay for insurance they do
a particular industry.
not need.
―― Cap fees on low balance accounts and
ban exit fees.
The Your Future, Your Super package
has four key elements:
1. Your superannuation follows you
– Your retirement savings should not be eaten away by
duplicate fees and insurance premiums on multiple
unintended accounts.
– The Government will make sure that a new superannuation Your superannuation
follows you
account is not automatically created every time you start a
new job. Instead, your super will follow you, so that your new
employer will pay your superannuation contributions into
your existing account.
– Stopping the creation of millions of unintended multiple
accounts will boost balances in super by about $2.8 billion by
avoiding duplicate fees and lost returns over the next decade.
Your Future, Your Super reforms to make your super work harder for you | Budget 2020–21 92. Empowering members
―― You should be given simple and clear information from a
reliable source to help you choose a high-performing and/or
low-cost superannuation product that meets your needs.
―― The Government will make it easy for you to choose who
manages your superannuation through a new, interactive,
online YourSuper comparison tool. Empowering
members
―― The YourSuper comparison tool will make the performance
of MySuper products clear, requiring funds to compete for
your savings.
3. Holding funds to account for underperformance
―― Under our compulsory superannuation system, you
should know whether your fund is underperforming and
underperforming funds should be called out.
―― The Government will better protect you from poor
superannuation outcomes by requiring superannuation
products to meet an annual performance test.
―― If your fund fails the test it will be required to tell you and
Holding funds
refer you to the new YourSuper comparison tool that can help
to account for
you select a better performing fund if you choose to do so. underperformance
Persistently underperforming products will be prevented from
taking on new members.
―― The test will ensure funds are focused on improving the
investment returns they are delivering and lowering the
fees they are charging their members.
4. Increasing transparency and accountability
―― For most Australians superannuation will be their largest asset
in retirement (besides their family home). Superannuation
funds should be held to the highest standards of accountability
and transparency in how they spend your retirement savings.
―― The Government will increase trustee accountability by
strengthening their obligations to ensure superannuation fund
actions are only undertaken in your financial interests. The
Government will also ensure that your superannuation fund is Increasing
transparency
more transparent in providing information about its operations
and accountability
ahead of its Annual Members’ Meeting.
10 Budget 2020–21 | Your Future, Your Super reforms to make your super work harder for youMeasure Benefits to members
over 10 years
Your superannuation follows you $2.8 billion
Empowering members $3.3 billion
Holding funds to account for $10.7 billion
underperformance
Increasing transparency and accountability $1.1 billion
Total $17.9 billion
Your super follows you and choosing a well-performing fund
Single good
+$98,000
Balance:
account $497,000 25% more
over 40
years
$58,000
starting salary
Multiple Balance:
poor accounts $399,000
Your Future, Your Super reforms to make your super work harder for you | Budget 2020–21 11Introduction
Australia’s Superannuation savings are overseen by three
regulators:
superannuation system • Australian Prudential Regulation Authority
(APRA) — to ensure superannuation savings
Australia’s superannuation system exists to are effectively managed to provide a benefit
maximise the retirement savings of Australians. in retirement.
The system is responsible for the retirement
savings of 16 million Australians, representing • Australian Securities and Investments
about $3 trillion. This is 50 per cent larger than Commission (ASIC) — to ensure
the value of all the companies listed on the superannuation funds operate efficiently,
Australian Securities Exchange (ASX) and up honestly and fairly.
from $148 billion in 1992.1 • Australian Taxation Office (ATO) — to enforce
The industry charges substantial fees for its superannuation funds’ reporting and
services. Right now, Australian households administrative obligations and regulate
pay $30 billion per year in superannuation fees self-managed superannuation funds.
(excluding insurance premiums).2 This is more
than the $27 billion Australian households pay on
their energy bills or the $12 billion they spend on Prior reviews of
the system
water bills. 3
As the system grows, the amount Australians
pay in fees will continue to rise. The total assets Since 2013, the Coalition Government has
in the superannuation system are projected commissioned a number of reviews to ensure the
to reach $5 trillion by 2034.4 Under the current financial system, including the superannuation
system, the amount of fees that will be paid by system, is working for Australians.
members in 2034 would reach $45 billion.5
The 2014 Financial System Inquiry (FSI) found
Importantly, Australians are required to the superannuation industry was charging
contribute 9.5 per cent of their salary towards high fees and needed to improve its efficiency,
their retirement. competitiveness and governance arrangements.7
Every year, through a combination of compulsory In response, the Government tasked the
and voluntary contributions, about $121 billion Productivity Commission to undertake a detailed
in superannuation contributions is paid into the investigation. Its three-year, comprehensive
system; approximately $1 billion is contributed review was released in 2019.
by 470,000 new members who enter the
superannuation system each year and do not The Productivity Commission found that the
choose a fund.6 superannuation system was working well for
some members, but that outcomes for other
members were poor.8 Structural flaws in the
12 Budget 2020–21 | Your Future, Your Super reforms to make your super work harder for youBetter off
in retirement
thanks to
Your Future,
Your Super
—
system were resulting in lower retirement The Royal Commission into Misconduct in the
balances for millions of members. These flaws Banking, Superannuation and Financial Services
included a system that led people to open Industry (Financial Services Royal Commission)
multiple accounts they did not need, resulting identified similar concerns. It recommended
in unnecessary fees. It also identified funds that an employee’s superannuation account
that persistently delivered poor returns for should be stapled to the member, so that a new
members. The Productivity Commission found account is not automatically created every time
the system offers an ‘unlucky lottery’ because of someone starts a new job.10 It also recommended
the variation in fees and performance between a number of changes to further strengthen
funds and the arbitrary nature of the default protection for members and improve regulatory
system.9 oversight.11 These recommendations have been
accepted by the Government and are being
implemented.12
$ 30 Total superannuation
fees per year
billion
Total spending
$ 27 on household
billion
energy bills
Total spending
$ 12 on household
billion
water bills
Your Future, Your Super reforms to make your super work harder for you | Budget 2020–21 13What is the super system costing you?
Fixing the 30 121
superannuation system
$ billion $ billion
was paid last year in is contributed by
super fees, more than Australians each
the $27 billion on year into the
energy, and superannuation
$12 billion on system
water bills
Structural flawsWhat
thatis the super system
Acrosscosting you?
the entire industry, the cost of
underperformance is at least $10.7 billion
need to be fixed
30 6$121
over 10 years. The worst performing fund was
$
1.4 percentage points below its benchmark.
billion million billion $100
In the worst performing MySuper product, this
billion
1. Funds with
was paid last year in is contributed
multiple accounts by
held of Australians’ money
super fees, more than byleaves the
Australians
4.4 million average
member
each
people up
is in to $98,000 worse
underperforming
underperforming products
the $27 billion on year into the super products
energy, and offsuperannuation
at retirement.
are not held to account
$12 billion on system
water bills The Government expects the superannuation
system to deliver a lot more for Australians.
The investment returns of superannuation
products have a large bearing on retirement
6 13.6
100% 3
balances. Small differences in fees and returns
translate into large differences in retirement
outcomes—for better or worse—because million they $ billion million
accumulate and compound over multiple accounts held
time. increase
of Australians’ money accounts
by 4.4 million people is in underperforming are in underperforming
in the average
super products super products
MySuper fee on a
Treasury analysis of APRA data shows that many $50,000 balance
superannuation funds are consistently poor since 2014
performers. This includes 21 out of 77 MySuper
products that underperformed a performance
benchmark developed by the Productivity
13.6% 3
Commission by more than 0.5 percentage points
over the period of 2014 to 2019. Those products: 2. Amillion
lack of competition,
• increase
Held over $100 billion in assets across accounts
disengaged members and
embedded inefficiency
are in underperforming
3 million accounts. in the average
super products
MySuper fee on a
• Received over 330,000
$50,000 balance
newsince
member
2014 accounts means Australians pay
and over $10 billion in contributions in higher fees
2018-19 alone.
Many Australians are disengaged from the
• Charged members $1.2 billion in fees superannuation system. The Productivity
annually. Commission found that “many Australians find
superannuation complex and are disengaged
from decisions about their retirement savings.”13
Design elements of the superannuation system,
including that contributions are compulsory
and that the majority of members end up in
14 Budget 2020–21 | Your Future, Your Super reforms to make your super work harder for youAustralians pay
a fund that they have not
$30 billion a year The Productivity Commission
chosen, perpetuates this in super fees found that fees in Australia are
disengagement.14 — high by international standards,
in part reflecting the absence
As stated by the FSI, there needs
of member-driven competition:
to be strong member engagement
“notwithstanding large differences in
to drive competition.15 Without strong
pension systems across countries, especially
competition, all members end up paying more
in asset allocation and administration, the
in fees and accumulating less retirement savings.
costs incurred by Australian superannuation
Further, as the FSI identified, the complexity funds are some of the highest in the OECD.”19
of the system is also a key driver of Other analysis has previously suggested that
disengagement.16 There is a wide variety of “Australians are paying up to three times more
products and information and no tools available than they should for superannuation.”20
to help members easily compare funds.
Additionally, as the Productivity Commission
The Productivity Commission found that two- concluded, the benefits of scale are not being
thirds of members do not actively select a fully realised or passed on to members in the
superannuation product when starting a new form of lower fees.21
job.17 Without the confidence and support
Since MySuper became operational in 2014, the
to engage from the outset, many members
average annual fee of MySuper products for a
remain disengaged as they age. Many
$50,000 balance has increased. This represents a
people do not make active decisions about
total fee increase of 13.6 per cent since June 2014.
their superannuation until they are close to
Over the same period MySuper products have
retirement. Even when people do engage,
increased in scale from $362 billion in June 2014
switching funds is relatively uncommon.18 Not
to $731 billion by June 2020.
only does this lack of engagement drive poor
outcomes for the individual, it also compromises This suggests many members are paying more
the effectiveness of the system. for their superannuation products than they
need to. Even a small difference in the level
This lack of member engagement also
of fees and returns in a year can substantially
undermines the benefits of competition. Without
reduce a member’s retirement balance.
strong competition, all members end up paying
more in fees and accumulating less retirement
savings.
Your Future, Your Super reforms to make your super work harder for you | Budget 2020–21 15Chart 1: The average fees for MySuper products have increased
515 $ $507 $ 515
$466
465 $447 465
415 415
365 365
315 315
265 265
Jun-14 Jun-17 Jun-20
Weighted-average fee for a $50,000 balance
Note: Fees are dollar-weighted and for a $50,000 balance. The dollar weighted-average annual fee of a MySuper product on a
$50,000 balance was 0.89 percentage points in June 2014, 0.93 percentage points in June 2017, and 1.01 percentage points in June 2020.
The minimum fee was $265 on a $50,000 balance in June 2014.
Source: APRA Quarterly MySuper statistics June 2020 and APRA Quarterly MySuper statistics back series.
Chart 2: Fees and investment returns vary widely across MySuper products
Number of products Number of products Number of products Number of products
16 16 25 25
14 14 Difference
$530 fee
of 5.9%
20 20
difference
12 12 between
between
top and
highest and
10 10 bottom
lowest fee 15 15
performing
product
product
8 8
10 10
6 6
4 4
5 5
2 2
0 0 0 0
1.3
1.2
1.5
1.5
2.5
1.8
1.9
3.5
6.5
5.5
0.3
0.2
1.4
0.5
0.5
4.5
0.8
0.9
1.6
>8
0.4
0.6
1.1
1.7
>2
0.1
0.7
0
1
0
1
2
3
4
5
6
7
7.5
Fees paid on a $50,000 balance (%) Five year net return (%)
Note: Five year net return to 30 June 2020 and for a $50,000 balance. Fees as at 29 May 2020. Lifecycle products are asset-weighted.
The five year net return is only available for 76 of the 88 MySuper products.
Source: APRA Quarterly MySuper statistics June 2020 and APRA MySuper Heatmap June 2020.
16 Budget 2020–21 | Your Future, Your Super reforms to make your super work harder for you$ 30 billion
was paid last year in
$ 1
is contr
super fees, more than Austral
the $27 billion on year int
energy, and superan
$12 billion on system
water bills
3. Unintended multiple
accounts
Unintended multiple accounts are created
27%
of Australians have
6million
multiple accounts held
$10
of Austr
when you change jobs and do not nominate a more than one by 4.4 million people is in und
super fund account super pr
superannuation fund. Under our compulsory
superannuation system, your employer is obligated
to nominate a superannuation fund on your behalf.
Each employer is required to have a ‘default’ fund
that they pay your compulsory contributions into,
13.6 3
if you do not choose your own fund. If you change
jobs multiple times over your working life and do
not nominate a superannuation fund, you could
4. Some superannuation % m
end up with multiple superannuation accounts
increase
trustees are not acting in acc
are in u
the best interests ofon atheir
in the average
with different funds, all charging separate fees and MySuper fee super p
members
insurance premiums. $50,000 balance
since 2014
As stated by the Productivity Commission, “these
While members are saving for their retirement,
unintended multiple accounts erode members’
superannuation trustees have one job: to
balances via multiple sets of fees and insurance
maximise their members’ retirement savings.
premiums, and often end up as lost, and then
This obligation is all the more important given
unclaimed, accounts.” 22
the compulsory nature of our system.
The latest data from the ATO shows there are
The current law attempts to make this obligation
around 6 million multiple accounts held by
clear by requiring trustees to act in their
4.4 million people.23 Over one third of multiple
members’ best interests.26
accounts are held by people aged 35 or younger.
These multiple accounts charge $450 million in However, the Productivity Commission found
fees a year. that “funds clearly do not always act in their
members’ best interests.” 27 As a result, the
As a result of the Government’s legislated
Productivity Commission recommended that the
Protecting Your Super reforms, inactive low
Australian Government should pursue
balance accounts are now automatically
consolidated into a member’s active account
“… a clearer articulation of what it means for a
by the ATO. While these reforms address the
trustee to act in members’ best interests.”28
existing number of multiple accounts, they will
not prevent the creation of new unintended
As noted at the hearings of the Financial Services
multiple accounts.
Royal Commission:
Further reform is needed. Every year
about 1.6 million people change jobs and “Trustees are surrounded by temptation — to
470,000 people enter the workforce for the first preference the interests of their sponsoring
time.24 Most people are defaulted into a new
organisations, to act in the interests of other parts
account, giving rise to about 850,000 duplicate
of their corporate group, to choose profit over
accounts every year.25 Added labour market
turnover as the economy recovers from the the interests of members, to establish structures
impact of COVID-19 creates even more urgency that consign to others the responsibility for the
to protect members from being defaulted into a fund and thereby relieve the trustee of visibility of
duplicate account they do not need.
anything that might be troubling”.29
Your Future, Your Super reforms to make your super work harder for you | Budget 2020–21 17Another problem identified by the Productivity
Commission with the superannuation system
Your Future, Your Super
was
The Government’s Your Future, Your Super
package is the next step in the Government’s
“…it is opaque, with members finding it difficult
plan to make sure the superannuation system
to understand how their super fund stacks up
delivers for members:
against others.”30
• Your super follows you, prevent the
This opaqueness and lack of transparency means creation of unintended multiple
members are effectively unable to hold their superannuation accounts.
fund to account for the returns they deliver and
• Empowering members by making it easier
theWhat
expenditure
is the
What they
super
is the undertake.
system
super costing
system you?
costing you? for you to choose a well-performing product
that meets your needs.
$$ 30
30
was paid
was last
billion
paidyear
billion
last in
year in
$$ 121
121
is contributed
billion
by by
is contributed
billion
• Holding funds to account for
underperformance, better protecting you
from poor superannuation outcomes.
supersuper
fees, fees,
moremore
than than Australians eacheach
Australians
the $27
thebillion on on
$27 billion year year
into the
into the • Increasing transparency and accountability
energy, and and
energy, superannuation
superannuation
$12 billion on on
$12 billion system
system for how superannuation funds use your
waterwater
bills bills
savings.
66million
million
multiple accounts
multiple
Your Future, $
held held
accounts
Your 100
100
$ Super billion
will deliver substantial savings for members
billion
of Australians’ money
of Australians’ money
by 4.4bymillion people
4.4 million people is in underperforming
is in underperforming
supersuper
products
products
Holding funds
to account for Your super
13.6
13.6%% 3accounts
3
underperformance follows you
million
million
increase
increaseaccounts
in theinaverage
the average are inare
underperforming
in underperforming
17.9
MySuper fee on
MySuper feea on a supersuper
products
products
$50,000 balance
$50,000 balance
sincesince
2014 2014
+$
billion
over 10 years
More
engagement Less waste
18 Budget 2020–21 | Your Future, Your Super reforms to make your super work harder for youYour super
follows you
The objective The Government believes Australians who
already have a superannuation account should
only have another account if they decide to
To stop the creation of unwanted multiple
open one. The Government will ensure that
accounts that reduce retirement savings of
a superannuation member’s account will be
members.
‘stapled’ to them as they change jobs. At the
time of starting a new job unless a member
decides otherwise, their employer will pay
The Government will ensure that when superannuation contributions into their
you move jobs your account will be existing fund.
‘stapled’ automatically to you, to protect
The introduction of stapled accounts will
your retirement savings being drained
implement Recommendation 3.5 of the
by the costs of unintended multiple
Financial Services Royal Commission and
accounts.
Recommendation 1 of the Productivity
Commission Superannuation Inquiry.
In the Financial Services Royal Commission’s
This reform will ensure that members are no
Final Report Commissioner Hayne stated,
longer accumulating multiple superannuation
accounts every time they change jobs. This will
“… default superannuation accounts should only
result in higher retirement savings for millions
be created for new workers, or workers who do of Australians as they will no longer be paying
not already have a superannuation account. And multiple sets of fees and insurance premiums.
that default account should then be carried over,
or ‘stapled’, to members as they move jobs. The
proliferation of unnecessary default accounts is
not in the interests of members.” 31
Your Future, Your Super reforms to make your super work harder for you | Budget 2020–21 19How it will work 1 July 2022, the ATO will enable digital software
providers to give employers the option to
The first phase of the reforms will commence automate the communications between the
on 1 July 2021. Employers will no longer employer’s payroll system and the ATO system.
automatically create a new superannuation Once this new service is adopted, it will remove
account in their chosen default fund for new the need for the employer to manually enter
employees when they do not decide on a into their payroll system their employees’
superannuation fund. Instead, employers superannuation fund details, reducing business
will obtain information about the employee’s administration costs.
existing superannuation fund from the ATO, if it
is not provided by the employee. Under both phases, if an employee does not
have an existing superannuation account
The employer will do this by logging onto ATO (e.g. is new to the workforce) and does not make
online services and entering the employee’s a decision regarding a fund, the employer will
details. Once an account has been selected, the pay the employee’s superannuation into their
employer will pay superannuation contributions nominated default superannuation fund.
into the employee’s account.
The second phase of the reforms will see the
ATO provide a new service for employers. As of
Employers
will no longer
automatically create a
new superannuation
account
—
20 Budget 2020–21 | Your Future, Your Super reforms to make your super work harder for youEmpowering How it will work
members The YourSuper comparison tool will, by
1 July 2021:
• Display a quarterly updated table of
MySuper products ranked by fees and
The objective investment returns, with products that
have not met the new higher performance
• To empower members to make their own standard clearly highlighted as
decision about who manages their retirement underperforming.
savings with simple, clear and trusted • Link you to the fund’s website when you
information. select a product from the table of
• To encourage more competition in the MySuper products.
system to lower fees and increase returns • Show your current superannuation
for members. accounts and allow you to select one of
your existing superannuation accounts.
The Government will develop a new • Prompt you to consider consolidating
interactive online ‘YourSuper’ comparison accounts if you have more than one fund.
tool which will allow you to make better The YourSuper comparison tool will be
decisions about which MySuper fund based on information that superannuation
manages your savings. funds report to APRA and will be developed
in consultation with the Treasury. The
information about product performance
will be updated quarterly to ensure people
When superannuation products are easy to are making decisions using up-to-date
compare, people are more likely to become information.
engaged with superannuation and choose
the product that is right for them. That is why, By facilitating greater and well-informed
by 1 July 2021, the Government will deliver an member engagement, the website will allow
interactive YourSuper comparison tool which will members to avoid poor performing and high-
be administered by the ATO. fee products. Employees who are starting
a new job will be able to use the YourSuper
For the first time, members will be able to comparison tool to locate a MySuper account.
compare the performance and fees of all
MySuper products in a single place, based on
independent and reliable information, with Benefits of the YourSuper
underperforming products clearly marked. comparison tool
The YourSuper comparison tool will mean
members can simply and safely pick a
well-performing MySuper product. Selecting
a high‑performing product compared with
a poor-performing product can significantly
boost retirement incomes.
Your Future, Your Super reforms to make your super work harder for you | Budget 2020–21 21Holding funds
to account for
underperformance
The objective should be a priority given the size and level of
disengagement in the default segment.32
• To protect Australians’ retirement savings As of 1 July 2021, MySuper products will be
from underperforming superannuation subject to an annual performance test. The first
products to maximise their savings for test for MySuper products will see funds that are
retirement. underperforming need to inform their members
of their underperformance by 1 October 2021.
• To ensure funds are maximising net (after
When funds inform their members about their
fees) investment returns.
underperformance they will also be required
• To hold funds accountable for the outcomes to provide them with information about the
they deliver to members. YourSuper comparison tool.
• To make members aware when their Underperforming funds will also be listed as
superannuation product is underperforming. underperforming on the YourSuper comparison
tool until their performance improves.
Funds that continue to underperform and fail
The Government will ensure members’ two consecutive annual underperformance tests,
retirement savings are protected from will not be permitted to accept new members.
underperforming funds by subjecting These funds will not be able to re-open to new
MySuper products and other trustee- members until their performance improves.
directed superannuation products to an
As of 1 July 2022, annual performance tests
annual objective performance test based
will be extended to ‘trustee-directed products’
on net investment returns, with clear
(TDPs) outside of MySuper.
consequences for failing the test.
TDPs are accumulation superannuation
products:
Australians will be better protected from
• which are regulated by APRA;
underperforming funds. Superannuation
products will be subject to a clear and objective • where the trustee has control over the design
annual performance test; members will be and implementation of the investment
informed if they are in an underperforming strategy; and
product and provided with the tools to
• where the investment strategy covers more
switch; and funds will face consequences for
than one asset class.
underperformance.
The Productivity Commission emphasised
that measures to deal with underperforming
products are necessary, and MySuper products
22 Budget 2020–21 | Your Future, Your Super reforms to make your super work harder for youThese products are most comparable to investment returns — the most important factor
MySuper products; the performance test is easily in determining retirement balances. Applying
adaptable to these products; and APRA is already the test to both MySuper products and TDPs
collecting data on them. will cover the majority of assets in accumulation
products within the APRA-regulated fund sector.
The annual benchmarking of TDPs will begin
on 1 July 2022 and TDPs will be subject to the Over time, other investment options which
same consequences as MySuper products for are made available by the trustee will also be
underperformance. subjected to annual performance tests.
The annual performance test will initially apply to
accumulation products and cover net (after fees)
Case study 1
Your Future, Your Super will ensure
superannuation funds are held to account
for their performance
Backhill Superfund offers a MySuper product and several non-MySuper options for its
members including Growth, Conservative, Cash, Property and Infrastructure. It also offers
an Australian equities direct investment option for members who want to manage their
own portfolio of Australian shares.
The new performance test will cover Backhill MySuper (from 1 July 2021), as well as Growth
and Conservative options (from 1 July 2022).
From 1 July 2021, APRA commences its first performance test and finds that Backhill
MySuper has underperformed. APRA informs Backhill Superfund of the assessment
and Backhill Superfund has to notify its MySuper members by 1 October 2021. Backhill
Superfund is also required to inform its MySuper members where they can locate the
YourSuper comparison tool. From 1 July 2022, APRA completes the second performance
test of Backhill MySuper and finds that the product has failed to improve its performance.
APRA informs Backhill Superfund of this and Backhill MySuper stops receiving new
members from 1 October 2022.
From 1 July 2022, APRA also completes the assessment of the Growth and Conservative
options and finds that both have underperformed. Backhill Superfund has until
1 October 2022 to notify its members in those options of this outcome and subsequently
incorporates this assessment in its annual member outcomes assessment.
Your Future, Your Super reforms to make your super work harder for you | Budget 2020–21 23Products that fail
the test will be
required to notify
members
—
The performance test will be based on the performance data. On an ongoing basis the test
methodology adopted by the Productivity will apply over an eight year period.
Commission and further refined by APRA in
To ensure funds are all held to the same
its ‘Heatmap’ analysis (see Appendix 2). This
standard, the test will be set in regulations by the
test will:
Government and administered by APRA. APRA
• allow the performance of products to be will publish the results of the test.
compared easily as the benchmark is tailored
The new performance framework will now
to each product’s asset allocation;
be the primary method for measuring
• be customised to individual products and underperformance in the superannuation sector
continue to provide funds with flexibility in and the APRA Heatmaps and the annual member
constructing their investment portfolio; outcomes self-assessment under existing law will
be amended accordingly.
• assess actual performance, net of fees and
taxes; and The implementation of this reform will give
effect to recommendation 4 of the Productivity
• be calculated over an eight-year time period
Commission Superannuation Inquiry.
that allows funds to target long-term
returns and not blame ‘one bad year’ for
underperformance. Consequences
These changes will see $10.7 billion in higher All products that fail the test will be required
returns for members over 10 years as members to notify members in writing. As part of this
leave underperforming products, some notification members will be informed that the
underperforming products improve their YourSuper comparison tool is available for them
performance and others merge with higher to compare their product against other MySuper
performing funds. products and help them switch to a better
performing product. Underperforming products
How it will work will be identified on the YourSuper comparison tool.
Products that fail the test two years in a row will
Each year APRA will construct an individual
not be permitted to accept new members until
benchmark for every MySuper product and TDPs
their net investment performance improves.
based on an individual product’s portfolio asset
This will stem the flow of contributions into
allocation, taking into account fees, tax and other
underperforming products and better protect
relevant assumptions. Each product will then be
members from poor outcomes. Products will be
compared annually against their benchmark.
allowed to receive new members again if their
Products that underperform their net investment performance improves.
return benchmark by 0.5 percentage points per
As part of APRA’s supervision, trustees of funds
year over an eight-year period will be classified
that are underperforming and closed to new
as underperforming. For MySuper products
members will need to justify how they are
that were in place from 1 July 2014, their first
meeting their obligations to existing members if
performance test will be based on seven years of
they do not merge or improve their performance.
24 Budget 2020–21 | Your Future, Your Super reforms to make your super work harder for youIncreasing transparency
and accountability
The objective a reasonable basis to support their actions
being consistent with members’ best financial
interests.
To ensure trustees only use members’ money to
maximise members’ retirement savings. To ensure that the best financial interests duty
is complied with by superannuation funds these
changes will be accompanied by anti-avoidance
measures, to ensure payments from the
The Government will legislate to
superannuation fund to a third party (including
compel superannuation trustees to
an interposed or a related entity) do not
act in the best financial interests of
undermine the intent of the changes.
their members.
No materiality threshold will apply to the
new duty.
This measure will remove ambiguity on how The implementation of this reform will give
superannuation trustees should be spending effect to recommendation 22 of the Productivity
members’ money. As the Productivity Commission Superannuation Inquiry.
Commission identified, unfortunately the culture
of some superannuation funds has drifted away
from the sole responsibility that they have as
Consequences
custodians of members’ money.33 Consistent The penalty provisions introduced by the
with the recommendation of the Productivity Government under the Treasury Laws Amendment
Commission to clarify what it means for a (Improving Accountability and Member Outcomes
trustee to act in members’ best interests, the in Superannuation Measures No. 1) Act 2019 will
Government will put beyond doubt that trustees apply for breaches of the new duty for both the
must act in the best financial interests of trustee and individual directors.
members. It will also give effect to the statement
in the Explanatory Memorandum to the
Superannuation Legislation Amendment (MySuper
Core Provisions) Act 2012 that “RSE [Registrable
Superannuation Entity] licensees will have a
heightened obligation to act in the best financial
interests of members that accept the
default option.”
In addition to strengthening the duty owed
by trustees, the onus on demonstrating
compliance with the new duty will be reversed
so that trustees must establish that there was
Your Future, Your Super reforms to make your super work harder for you | Budget 2020–21 25Case study 2
Your Future, Your Super will
ensure superannuation funds are
more accountable for how they
spend your money
Backhill Superannuation Fund decided to fund a television marketing campaign to promote
their fund, spending $5 million of members’ money. Backhill Superannuation Fund argues
that spending the money will lead to an increase in the number of members by 5,000. As a
result of the increase in members, the trustee believes that this will allow them to reduce
their fees by 0.01 percentage points by spreading the fixed costs of the fund across more
members. However, following the campaign no decline in fees results.
APRA undertakes an audit of Backhill Superannuation Fund. It asks for information to
justify why the marketing campaign was in the best financial interests of its members. The
trustee produces detailed analysis that shows previous campaigns delivered the increase
in members. The trustee is also able to produce evidence of unforeseeable events that
undermined the effectiveness of the campaign. APRA is satisfied that at the time of making
the decision to proceed with the marketing campaign the fund had acted reasonably in
forming the view that the expenditure was in the best financial interests of its members.
Member engagement will be improved if
Providing further transparency on members receive simpler and clearer
how trustees are spending your information about how funds manage and spend
money members’ money. This information will allow
them to assess the decisions the trustee has
The Government will require your made on their behalf.
superannuation fund to provide you
with better information regarding
how they manage and spend your
money in advance of the
Annual Members’ Meeting.
26 Budget 2020–21 | Your Future, Your Super reforms to make your super work harder for youHow it will work • Remuneration of key executives, in line with
ASX-listed companies along with any related
As part of the Treasury Laws Amendment entity of the fund.
(Improving Accountability and Member Outcomes
in Superannuation Measures No. 1) Act 2019, • Marketing expenditures relating to promoting
superannuation funds are now required to hold the fund, either directly or indirectly.
Annual Members’ Meetings once a year. These • Political donations, either directly or indirectly.
meetings allow the trustee to explain how the
fund has performed in the last financial year and • Sponsorships relating to promoting the fund,
answer any questions that members have. The either directly or indirectly.
Annual Members’ Meetings can be held digitally, • Payments to industry bodies or trade
which will allow more members to participate. associations, either directly or indirectly.
The Government will implement regulations that • Related party transactions (including
will require the notice of meetings to members payments to non-investment entities).
to include the following:
Guidance will be provided to assist funds in
• The annual report of the fund. presenting the information in a way that allows
• The annual outcomes assessment funds are members to understand the information and
required to undertake. ensure there is consistency across the industry.
• A copy of the most recent periodic statement
for the member.
• A summary of each significant event or
material change notice that superannuation
funds were required to send under the
Corporations Act 2001 in the last financial year.
Your Future, Your Super reforms to make your super work harder for you | Budget 2020–21 27Measuring the benefits
of Your Future,
Your Super
Your Future, Your Super will encourage • More members making informed decisions
competition between funds, remove about their superannuation and increased
unnecessary waste built into the system, and engagement via the YourSuper comparison
improve standards so funds focus on delivering tool will provide an additional benefit of
better fund performance and minimise $3.3 billion over 10 years.
unnecessary expenditure. By giving Australians
• Superannuation that follows you, by
clear information on investment performance
removing the problem of multiple unintended
outcomes and making it easier to compare
accounts, will lead to an aggregate increase
products, members will be empowered to make
of superannuation savings of $2.8 billion over
better choices about who they trust to invest
10 years.
their retirement savings.
• Less waste of members’ money through
Through these changes, better performing
greater transparency and accountability also
superannuation products will grow and gain
has the potential to boost members’ savings
members. Underperforming products will
by around $1.1 billion over 10 years.
be made more accountable to their existing
members and will not be able to receive new These estimates have been developed by
members if they continue to underperform. Treasury in consultation with the Australian
Government Actuary, including by updating
The aggregate improvement in superannuation
relevant Productivity Commission analysis.
balances from the Your Future, Your Super
package of reforms is estimated to be
Impacts on members
$17.9 billion over 10 years. On an annual basis the
reforms would be expected to benefit members
by around $1.8 billion a year. Not progressing the
reforms could cost Australian households around Your Future, Your Super will make it easier for
$5 million per day. members to choose a well-performing product
and actively engage with their superannuation.
Each component of the Government’s policy Australians will no longer have unintended
package contributes to these benefits for superannuation accounts that result in multiple
Australians: fees and unnecessary duplicate insurance
• By improving underperformance premiums that reduce their retirement savings.
superannuation balances will be $10.7 billion The reforms will hold superannuation funds to
better off over 10 years. a higher standard in how they spend members’
money. Australians will be told when their
28 Budget 2020–21 | Your Future, Your Super reforms to make your super work harder for youto holding
better infunds
off in retirement thanks
thanks
better
to off
account retirement
for m
to Your
to Your Future,
Future, Your
Your Super
Super
underperformance, t
improving engagement
improving engagement andand
over 10 years e
avoiding unnecessary
avoiding unnecessary fees
fees
s
Your Super will benefit you
on
10.7 2.8
3.3
$
$ billion $ billion
98,000
billion
more super thanks to
$
more super
more super thanks
thanks
$
$ billion
billion
your super following
to holding
to holding funds
funds
better off in retirement thanks you, over 10 years
to account
account forfor more super
more super thanks
thanks
to
to Your Future, Your Super
underperformance, to empowering
empowering members
members toto
underperformance, to
improving
over 10 engagement and
10 years
years engage with
with their
their retirement
retirement
over engage
avoiding unnecessary fees savings, over
over 10
10 years
years
savings,
2.8 $
$ 1.1 billion
billion
3.3
$
$ billion
billion
ion more super
super thanks
thanks to
to
more super
more super thanks
thanks to
to
more reducing waste
waste in
in the
the
$your super
your
you, over
over 10
10 years
years
billion
super following
following reducing
super system
super system through
through
you, more transparency
transparency
more super thanks more
to empowering members to and accountability,
and accountability,
engage with their retirement over 10
over 10 years
years
savings, over 10 years
product is underperforming and prevented A typical 50 year old who uses the YourSuper
1.1
from joining persistently underperforming comparison tool to choose a top performing
products. The focus on benchmarked investment fund after being notified of underperformance
performance will also foster competition, could have around $60,000 more superannuation
encouraging funds to reduce fees and costs, at retirement.
on
$ billion
and boost members’ retirement savings. Young
Australians entering the workforce could be
Ultimately, Your Future, Your Super will mean that
your super will work harder for you, helping you
up tomore
$98,000super thanks
better off to
at retirement because
save more for your retirement.
reducing
of these reforms.waste in the
Australians approaching
retirement
super system throughthese reforms.
will also benefit from
more transparency
and accountability,
over 10 years Your Future, Your Super reforms to make your super work harder for you | Budget 2020–21 29Case study 3
Your Future, Your Super will help young
Australians choose the superannuation
fund that is right for them, and avoid
unnecessary fees
Jill enters the workforce as a full-time legal secretary. As Jill hasn’t had a job before, she doesn’t have a
superannuation fund. Jill is asked by her employer to fill in a ‘choice of superannuation fund’ form.
Jill investigates what funds are available but finds it difficult to compare different superannuation
funds and is unsure of how to find a good fund. As a result, Jill signs the paperwork her employer
provides and is defaulted into the employer-nominated fund.
Jill changes jobs twice early in her career. Each time, she does not nominate a fund and is defaulted
into a new superannuation fund by her employer.
As a result, Jill has three separate superannuation accounts. Over time, the superannuation held in
Jill’s first two inactive accounts has been subject to additional insurance, administration and
investment fees.
At retirement, Jill has had her hard earned retirement savings eaten away by poor performing funds
and multiple sets of insurance premiums and fees.
Under the reforms introduced in this package, Jill will be better off.
When Jill enters the workforce, she is presented with easy to understand information about MySuper
product fees and performance through the YourSuper comparison tool. It helps Jill to compare fund
performance and choose a top performing superannuation product which meets her needs.
When starting a new job, Jill will no longer have to nominate her existing fund and provide its details
to avoid being defaulted into a new, duplicate fund. Instead, Jill’s first superannuation account will
stay with her throughout her career until she chooses to change funds. When starting a new job,
Jill will be encouraged to again access the YourSuper tool and confirm she wishes to maintain her
existing superannuation account. If she does not, her employer will get her superannuation details
from the ATO. This prevents Jill holding unintended duplicate superannuation accounts and incurring
unnecessary fees and insurance premiums. As a result of these reforms Jill will be $98,000 better off
when she reaches retirement age.
3030Budget
Budget
2020–21
2020–21
| Your
| Your
Future,
Future,
Your Your
SuperSuper
Reforms
reforms
to make
to make
youryour
super
super
workwork
harder
harder
for you
for youYou can also read
